From the Magazine

Most Americans have assumed their bank accounts are sacrosanct. But with the major scandal unfolding at Wells Fargo, angry former employees illuminate the alarming pressure that allegedly led local bankers to defraud perhaps more than a million customers.

BREAKING THE BANK
Former Wells Fargo executives, from top: Carrie Tolstedt, head of
Community Banking; C.E.O. Dick Kovacevich; and his successor, John Stumpf.

Photo Illustration by Cristiana Couceiro.

Once upon a time, in 1970, long before America’s banking system was
dominated by six giant institutions—JPMorgan Chase, Bank of America,
Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley—Dennis
Hambek started working as a messenger at the National Bank of Washington
in Ellensburg, Washington. Over the years, as his career advanced from
messenger to loan officer to branch manager, he had a front-row seat at
the transformation of America’s banking system. That first year, the
National Bank of Washington was swallowed up by Pacific National Bank of
Seattle, which in 1981 was bought by Los Angeles-based First Interstate
Bancorp, which in 1996 was bought by San Francisco-based Wells Fargo,
which in 1999—as the consolidation frenzy was reaching its
peak—merged with Norwest, a Minneapolis-based bank, in a $34 billion
deal.

Wells Fargo, which was founded in 1852 as a stagecoach express to carry
valuable goods to and from the gold mines in the West, had a storied
brand, so the new, combined company kept that name. But if Norwest’s
name didn’t survive, its corporate culture did. Spearheaded by the
company’s then C.E.O., Dick Kovacevich, it involved a novel way of
thinking about banking.

As Kovacevich told me in a 1998 profile of him I wrote for Fortune
magazine, the key question facing banks was “How do you sell money?”
His answer was that financial instruments—A.T.M. cards, checking
accounts, credit cards, loans—were consumer products, no different
from, say, screwdrivers sold by Home Depot. In Kovacevich’s lingo, bank
branches were “stores,” and bankers were “salespeople” whose job was
to “cross-sell,” which meant getting “customers”—not “clients,”
but “customers”—to buy as many products as possible. “It was his
business model,” says a former Norwest executive. “It was a religion.
It very much was the culture.”

It was underpinned by the financial reality that customers who had, say,
lines of credit and savings accounts with the bank were far more
profitable than those who just had checking accounts. In 1997, prior to
Norwest’s merger with Wells Fargo, Kovacevich launched an initiative
called “Going for Gr-Eight,” which meant getting the customer to buy
eight products from the bank. The reason for eight? “It rhymes with
GREAT!” he said.

This slogan, however, as experienced by bankers on the ground such as
Hambek, was more hard-core than hokey. “We had a lot of longtime
customers and a good staff, but the sales pressure kept mounting,
mounting, mounting,” Hambek says. “Every morning, we had a conference
call with all the managers. You were supposed to tell them how you were
going to make your sales goal for the day, and if you didn’t, you’d have
to call in the afternoon to explain why you didn’t make it and how you
were going to fix it. It was really tense.” Achieving sales goals
wasn’t easy. Ellensburg is a small town, and there were seven other
banks.

That’s when Hambek began to see things that shouldn’t have been
happening: bankers persuading customers to take out large loans and then
immediately repay part of them so that the banker could get credit for
the bigger loan, for instance. In the summer of 2005, a customer named
Bill Moore complained to Hambek about a checking account and a savings
account—that he had been given but hadn’t asked for and didn’t want.
Hambek investigated and discovered that the banker who opened them had
entered Moore’s driver’s-license number as “MOOREWF00000” and the date
of issuance as January 1, 2000, a holiday when the Washington State
Department of Licensing would have been closed, as shown by documents
first obtained by Vice News.

“Gaming,” which was defined in the Wells Fargo Code of Ethics as “the
manipulation and/or misrepresentation of sales or referrals . . . in
an attempt to receive compensation or to meet sales goals,” was
supposed to be a big no-no, so Hambek called the Wells Fargo EthicsLine,
and he told his supervisor what he’d found. “I said, ‘This is blatant
gaming,’ ” he recalls, but nobody seemed to care. Later that summer,
after 35 years of service, he retired in order to avoid being fired for
lack of productivity.

INSIDE WELLS, THE ATTITUDE WAS “DO WHAT YOU HAVE TO DO, BUT DON’T GET
CAUGHT.”

On December 27, 2005, Hambek sent a letter via certified mail to Carrie
Tolstedt, who had become the head of regional banking at Wells Fargo in
2002. In the letter, which would have been passed on to the bank’s legal
department, he described the gaming he’d witnessed, and told her that
employees were leaving. “It would behoove someone to survey these
employees as to the true reason they left the company.” He added,
“Upper management is also aware of this, as is the ethics line, yet no
action has been taken.”

Hambek never got a response to his letter. (Wells Fargo had no comment
on this matter.)

In the ensuing decade, the big banks got even bigger. Wells Fargo
swallowed up Wachovia during the financial crisis, to become the
country’s third-largest bank by assets, and its soaring stock made it
worth almost $300 billion. John Stumpf, a native Minnesotan who could
have played a modern George Bailey, took over as C.E.O. when Kovacevich
retired, at the end of 2007. He, like Kovacevich, repeatedly cited Wells
Fargo’s success at cross-selling as a reason investors should value the
bank’s stock—and they believed. “In the eyes of Wall Street, Wells
has always been a cut above,” says one longtime bank investor. Unlike
the other big banks, it positioned itself as “the bank of the real
economy,” i.e., its major business was retail banking for everyday
folks, not trading or investment banking for sophisticated investors. It
helped that Warren Buffett’s Berkshire Hathaway has long been the bank’s
biggest shareholder.

Don’t Bank on It

But the pretty picture masked a dark reality. On September 8, 2016,
Wells Fargo agreed to pay a combined $185 million penalty to the
Consumer Financial Protection Bureau (C.F.P.B.), the Office of the
Comptroller of the Currency, and the City and County of Los Angeles to
settle charges from all three that, as the C.F.P.B. put it, there had
been “fraudulent conduct . . . on a massive scale.” (As part of the
agreement Wells Fargo admitted no wrongdoing.)

Wells Fargo’s own analysis found that between 2011 and 2015 its
employees had opened more than 1.5 million deposit accounts and more
than 565,000 credit-card accounts that may not have been authorized.
Some customers were charged fees on accounts they didn’t know they had,
and some customers had collection agencies calling them due to unpaid
fees on accounts they didn’t know existed. Gaming was so widespread that
it had even spawned related terms, such as “pinning,” which meant
assigning customers personal-identification numbers, or PINs, without
their knowledge in order to impersonate them on Wells Fargo computers
and enroll them in various products without their knowledge. The fraud
was not only big, but blatant, with 193,000 non-employee accounts opened
between 2011 and 2015 for which the only e-mail domain name listed was
@wellsfargo.com, according to the Los Angeles city attorney’s office.

In light of all this, the $185 million fine was a pittance—less than
Tolstedt and Stumpf had made in the previous five years and a mere 3
percent of second-quarter profits. And Wells, which also announced that
it had fired some 1,000 mainly junior employees for gaming, clearly
thought it had disposed of a nuisance issue.

But that was hardly the end of it. Suddenly Wells Fargo employees, such
as Hambek, came forward in droves, and America got mad in a way that we
hadn’t over other financial scandals. “I think the public expects
international financial banks to lose billions in nefarious ways,” says
Isaac Boltansky, the director of policy research at Compass Point, a
prominent boutique investment bank. “But learning that the American
checking account has been co-opted has insidious wrinkles. This is
supposed to be one of the most trusted things in the world.”

At congressional hearings in which John Stumpf’s appealing midwestern
diffidence suddenly seemed like appalling arrogance, representatives
from both sides of the aisle let loose. “Fraud is fraud. Theft is
theft,” thundered Texas Republican congressman Jeb Hensarling, “and
what happened at Wells Fargo over the course of many years cannot be
described any other way.”

Now Wells Fargo is facing a plethora of ongoing investigations by
various authorities, including criminal probes by the Justice Department
and the California attorney general. The latter has requested not just
the identity of the Wells Fargo employees who might have “used the
unlawfully obtained [PINs] to commit false impersonation and
identity theft,” according to a search warrant first made public by the
Los Angeles Times, but also “the managers of the identified employees
. . . [including] branch managers, area managers, and regional
managers.”

“People want to trust their banks, and Wells has brought mistrust to
the table,” says one longtime investor.

So how is it that Dick Kovacevich’s beautiful strategy went so horribly
wrong?

VIDEO: Bernie Madoff’s Victims Speak Out

Almost 15 years before the scandal became front-page news, in 2002,
Wells Fargo’s internal investigations unit had noticed an uptick in what
they called “sales integrity” cases. “Whether real or perceived, team
members . . . feel they cannot make sales goals without gaming the
system,” an investigator wrote in a report dated August 2004. “The
incentive to cheat is based on the fear of losing their jobs.” The
report recommended that Wells consider reducing or eliminating sales
goals, as several peer banks had done, and warned that the issue could
lead to “loss of business and . . . diminished reputation in the
community.”

There was no follow-up.

The list of employees who complained is long and reaches back well over
a decade. In March of 2008, just around the time the financial crisis
was getting into full swing, Yesenia Guitron was hired as a personal
banker at Wells Fargo’s St. Helena branch, in California’s Napa Valley.
The sole provider for her two children, she had heard negative things
about the environment at Wells, but she didn’t have many options. “The
economy had shut down,” she recalls. “I needed the job.”

Guitron soon discovered there was no shortage of internal publications
that advised Wells employees on how to conduct themselves, including the
Wells Fargo Code of Ethics and the Wells Fargo Team Member Handbook,
which warned if an employee engaged in “manipulating or misrepresenting
sales [gaming] in an attempt to meet sales goals or receive
compensation” immediate termination could result.

But soon after she was hired, Guitron saw a different reality. “I
realized why all the other bankers had left,” she says. The pressure
was intense. There were “morning huddle” meetings to discuss “Daily
Solutions,” or sales goals for the day, and a manager would do hourly
check-ins to see if each banker was making progress toward his or her
quota, which in 2008 was eight products per day. (The number was
increased in 2010 to 8.5.) “Call nights” were scheduled after the
branch closed to “help” bankers who were having trouble meeting their
sales goals, which were challenging in St. Helena. According to an
analysis that was done for a lawsuit Guitron later filed, there were
only about 11,500 potential customers in the area, and 11 other
financial institutions. The quotas for the bankers at Guitron’s branch
totaled 12,000 Daily Solutions each year, including almost 3,000 new
checking accounts. Without fraud, the math didn’t work.

“ALL THE TELLERS KNEW [OF THE FRAUDS], BUT . . . PEOPLE NEEDED THE
JOB.”

Guitron says that customers began coming to her, complaining about
getting mail from Wells Fargo on accounts or services that they had
never authorized. “People knew me and knew I could fix the problems,”
she says. A common denominator, according to Guitron, was that most of
the customers were Spanish-speaking, like her, so they didn’t feel
comfortable going to management in English.

“All the tellers and staff knew it, but no one else would complain,”
Guitron says. “People needed the job. So did I, but I knew right from
wrong.” On September 19, 2008, she sent an e-mail to her branch
manager. “I have come across instances where I’ve opened accounts and
shortly after they are closed and new sets of accounts are opened,” she
wrote. “I find NO banker notes to explain why this is happening. I am
very concerned as I know this to be GAMING!!!” She collected
approximately 300 printouts of accounts that were problematic in various
ways, she says, such as a minor having more than a dozen accounts. But,
according to Guitron in legal documents, her manager would say only,
“It’s a misunderstanding.” Or “You need to mind your own business.”

Nothing changed, so Guitron requested meetings with more senior
executives. Overall, she claimed that during her tenure at Wells Fargo
she raised concerns on more than 100 occasions, including about a dozen
calls to the Wells Fargo EthicsLine, and on no fewer than 37 occasions
she provided records that supported her complaints. Guitron alleges that
her managers began to retaliate, making it harder for her to meet her
sales goals. She was fired in January 2010.

In 2011, Guitron, along with another employee, Judi Klosek, who had made
similar complaints, filed a whistle-blower lawsuit. The account
printouts Guitron had collected were filed with the court, as were
depositions from many other Wells Fargo employees. To cite but two:
Irene Perez, who was the lead teller at the St. Helena branch from 2008
to 2011, claimed, “Everyone at the branch . . . was aware of the
unethical conduct of bankers.”

“It was normal business practices to use false identification on
accounts and to change customers’ names and open new accounts,” said
Dreydy Metelin, another personal banker at the branch, in her
deposition. “Management made it clear that no employee was allowed to
complain about the unethical practices that were going on within the
branch.”

Morally Bankrupt

In 2012, the court ruled in Wells Fargo’s favor, mainly because Wells
presented “clear and convincing evidence” that Guitron had, in fact,
failed to meet her sales goals, so she would have been fired anyway. She
appealed and lost again on the same basis. Her legal bills were more
than $42,000, but the court reduced them to $18,675.70 based in part
on the “significant difference between Wells Fargo’s resources and
Guitron’s ability to pay.” (Wells Fargo would not comment on this
matter.)

Julie Tishkoff, an administrative assistant to a Wells Fargo regional
president, said, according to her discrimination complaint, that around
the same time, in 2005, she observed “fraudulent banking practices,”
including bank employees’ “forging customer signatures and
fraudulent[ly] opening accounts for customers without their
knowledge or consent” and soliciting elderly or otherwise vulnerable
customers to take out lines of credit even though they didn’t understand
the product.

Inevitably, customers began to sue, too. In the fall of 2013, David
Douglas filed a lawsuit against Wells Fargo and three local employees,
alleging that Wells bankers had opened eight accounts he didn’t want or
know about, funding them with money from his legitimate accounts.
Douglas contacted a Wells Fargo fraud investigator, who assured him they
would look into it—but no one ever got back to him. His lawyer,
Michael Kade, is currently also representing nine former Wells Fargo
employees in a suit against the bank due to go to trial in the fall.

The lawsuits continued to pile up, and a journalist finally noticed. In
December 2013, E. Scott Reckard, then a reporter at the Los Angeles
Times, wrote an article titled “Wells Fargo’s Pressure-Cooker Sales
Culture Comes at a Cost.” He made the point that the “relentless
pressure to sell has battered employee morale and led to ethical
breaches, customer complaints and labor lawsuits.” The article caught
the eye of Mike Feuer, a Harvard-trained lawyer and politician who had
become the Los Angeles city attorney. He was shocked by the revelations
in the piece, but he didn’t have subpoena power. So he asked his staff
to investigate by doing what he calls “good old-fashioned detective
work”—conducting dozens of interviews with current and former Wells
Fargo employees and customers, going through court documents, and
searching the C.F.P.B. and Federal Trade Commission consumer-complaint
databases.

The Office of the Comptroller of the Currency (O.C.C.), which is Wells
Fargo’s regulator, also started to get complaints from customers and
employees. One of the plaintiffs, Yasmeen Fasheh, began working at a
Wells branch in Los Angeles in the spring of 2000. She alleged in a
recently filed lawsuit that the pressure to cross-sell resulted in
employees’ “impersonating customers” on Wells Fargo computers in order
to enroll them in services without their consent, and selling to older
customers on the belief that they wouldn’t review their bank statements.
She alleged that she finally contacted Lefky Mansi, Wells’s longtime
area president for Los Angeles. “You’re just a little ant in the
company,” Fasheh alleges he responded. “If I’m going down, you’re
going down, as well.” She called human resources too, which, she
claims, told her “they were aware that these practices were occurring
throughout the company, but there was nothing they could do.” (Wells
Fargo declined to comment.)

The Names of the Games

Ken Mac, who worked at Wells Fargo’s Arcadia, California, branch over
the summer of 2013, calls his brief stint at Wells “the lowest point of
my life.” Mac, a fluent Chinese speaker, says that he got an elderly
Chinese woman to sign up for a credit card she didn’t want by telling
her “it was confirmation that she stopped by to update her address. I
felt sick in my stomach,” he says, “but it was a tough economy, and I
was worried, if I lost this job, I would be in a tough financial
situation.”

Ivan Rodriguez worked at three Wells Fargo branches in California,
starting in 2007, and was quickly promoted to be a banker. There was
pressure right away, but he knew he was in a sales job, and he thought,
It is what it is. But he saw things: bankers changing customers’ phone
numbers in the system so, if they complained, no one could get in touch
with them; online banking accounts for elderly customers who didn’t know
how to use computers. But the worst, he says, was the shredding. In
order to get a signature on an account a customer didn’t want, bankers
would cut a signature out of an existing account, scan that through, and
then shred the evidence. They never got caught, because, in the branches
he worked at, the manager would get 24 hours’ notice before Wells
Fargo’s auditors came through. Indeed, according to a Wall Street
Journal story, the advance notice that auditors were coming was common
among Wells’s roughly 6,000 branches; more than a dozen employees told
the Journal they’d either forged or seen colleagues forge signatures or
shred the papers. (Wells Fargo has said it would eliminate the 24-hour
notice of auditor visits.)

On May 4, 2015, after his investigators had worked the case for 16
months, Feuer, the L.A. city attorney, filed a civil enforcement case
against Wells. In the days following, his office got calls and e-mails
from more than a thousand Wells Fargo customers and current and former
employees describing a “veritable litany of horrific experiences,” as
Jim Clark, Feuer’s chief deputy, put it to Congress.

“Anecdotally, the feeling is that everyone knew,” says Jonathan
Delshad, a lawyer who has filed a case on behalf of former Wells Fargo
employees, and who says that more than 800 people have called his firm.
“The better they did at sales, the more they advanced, so it got spread
across the company. An entire generation of managers thrived in the
culture, got rewarded for it, and are now in positions of power.”

“AN ENTIRE GENERATION OF MANAGERS THRIVED IN THE CULTURE . . . AND ARE
NOW IN POSITIONS OF POWER.”

Delshad’s conclusion is echoed in a report done by Wells Fargo’s
independent board members, which was released on April 10. “To many
employees, the route to success was selling more than your peers,” the
report stated.

Even after the L.A. Times story, there were no dramatic changes. “What
has mystified everybody and anybody, what other bank managements have
asked me, is why, when the L.A. Times story hit, did you not rip the
place apart and find out who was pushing these practices?” asks Nancy
Bush, a bank analyst who has covered Wells Fargo for over three decades.

The potential for problems was inherent in the strategy Dick Kovacevich
created. Or, as Dennis Hambek says, “I think what Dick Kovacevich
implemented was John Stumpf’s downfall.”

Kovacevich was a larger-than-life C.E.O. As a Stanford baseball player,
he sustained a shoulder injury that thwarted his plan to play in the
major leagues. Instead, he earned an M.B.A. and started his career
selling consumer products such as toys for General Mills. In the
mid-1970s, he was recruited by Walter Wriston, of Citicorp, where he
helped change the face of banking by rolling out Citi’s then
revolutionary A.T.M.’s. But he was passed over for the top consumer job
and was lured to Norwest in 1986. Looking back, a longtime Wells analyst
says he is struck by the “enigma” that was Kovacevich. He exuded
midwestern values, and in 1993, the year he became C.E.O., he began
publishing the Wells Fargo Vision & Values, which featured such
homilies as “In hiring, we really don’t care how much a person knows
until we know how much they care.” But he also called financial
services “the ultimate team sport,” and was extraordinarily intense
and aggressive—even arrogant to some. “He was one of the most
competitive people I have ever known,” says an executive who used to
play tennis with him. “We were evenly matched, but he would win because
winning was more important to him than it was to me—and I am
competitive!”

Although Kovacevich stressed ethics, he also said the most important
metric of success was revenue growth. But calling a client a customer
and a branch a store had a dark side, as the former executive points
out, because it implicitly downgrades the bank’s level of responsibility
toward its clients. Yet Kovacevich argued that “when customers vote
with their pocket books, we know we’re doing something right.”

Stumpf was a different character, more affable than arrogant. “If you
were writing a movie script, this is not the guy you would want to play
the villain,” says longtime banking analyst Mike Mayo. Stumpf was
Minnesotan, through and through. He grew up on a farm, one of 11
children, and after college he worked as a repo man. “What got John
most excited was talking about his days as a repo man,” says an
investor who knows him well. “He has these vivid stories of
repossessing cars while another guy would be the lookout guy.” Unlike
Kovacevich, who would tell his executives, “The only thing I want to
hear is bad news,” Stumpf seemed to be proud that the culture was one
of “Minnesota nice.” He “was not perceived within Wells Fargo as
someone who wanted to hear bad news or deal with conflict,” noted the
board report.

H.R. KNEW “THESE PRACTICES WERE OCCURRING . . . BUT [SAID] THERE WAS
NOTHING THEY COULD DO.”

Nor was he the kind of C.E.O. to question Dick Kovacevich’s script.
Indeed, he appropriated much of it. When asked why Wells Fargo had a
cross-selling goal of eight, he’d say, “The answer is: it rhymed with
‘great!’ ”

He was liked by investors—what wasn’t to like?—but for better and
worse, he didn’t have the presence that Kovacevich had had. He was less
self-aggrandizing, but he also seemed to some to be more of a
big-picture C.E.O. than one who was enmeshed in the dirty minutiae of
operations. “I never felt he had a detailed grip on the intricacies of
the business,” says an investor. “There was nothing remarkable about
the guy,” says another investor. “I always thought [until the
scandal] that he was dealt a really good hand.”

Paradoxically the hard-core sales culture seemed to intensify once
Stumpf took over. In 2010, both the compensation and performance ratings
systems were rejiggered so that they were associated with sales goals.
Bankers, branch managers, and district managers risked pay cuts and poor
performance reviews if they didn’t hit the goals, noted the board
report, and employees were ranked against one another.

The pressure was greatest in California, Arizona, and Florida. Pam
Conboy, who ran Wells’s Arizona regional banking from 2007 to 2017 and
who had taken Arizona from last place to first in sales rankings, gave a
presentation at a 2010 leadership conference in which she encouraged the
use of “morning huddles” to discuss the previous day’s sales reports,
and told district managers they should call to check on branches
multiple times a day. Another executive, named Shelley Freeman, who ran
the Los Angeles region until 2009, and then Florida, would have district
managers “run the gauntlet”: each would have to dress up in a themed
costume and run down the line to a whiteboard to report the number of
sales they had achieved. According to the board report, on a
per-employee basis, the reports of sales-practice misconduct tripled
from the second quarter of 2007 through the fourth quarter of 2013.

Kovacevich told someone who knows him that he would never have tolerated
this treatment of employees, which he has described as “harassment.”
He has called the issues during his tenure “infinitesimal.”

Job Wells Done

Stumpf had risen through the ranks, and so did Carrie Tolstedt, the
daughter of a baker who had started her career at Norwest in Nebraska,
in 1986. She and Stumpf were a symbiotic pair. Tolstedt wasn’t flashy
either, and impressed investors as a detail-oriented, hardworking
operator; a former Wells executive says she “worked 16 hours a day, 7
days a week.” Stumpf’s support for her was extraordinary. He thought
“she was the ‘most brilliant’ Community Banker he had ever met,” the
board report noted. In return she delivered the numbers he wanted to
see.

Tolstedt told investors that customers who had five products with Wells
Fargo were three times as profitable as those with three products, while
those with eight products were five times as profitable. Additionally,
the more accounts a customer had, the less likely it was that he or she
would switch to another bank paying higher rates of interest. One
investor argues that was a key reason that Wells, for years, had a lower
cost of funds than its peers. This was a critical advantage because it
allowed Wells to price loans lower than other big banks could and still
make the same profit. Said Warren Buffett in a 2009 interview, “The key
to the future of Wells is continuing to get the money in at very low
costs.”

Wells’s stock price soared, and Tolstedt, whose salary was $1.75
million, received more than $20 million in annual bonuses from 2010 to
2015, which was justified in part by the “record cross-sell results”
in her division, said Wells in its financial filings. But Stumpf and the
rest of the executive team, and soon the board, knew there were issues.
It wasn’t just the press and the Los Angeles city attorney. In 2011, a
group of bankers who were terminated for sales violations wrote a letter
to Stumpf, arguing that their actions had not only been condoned by
management in their branch, but that similar things were happening
across the bank. Multiple task forces were convened. Lisa Stevens, who
became the head of the West Coast region in 2010 and reported directly
to Tolstedt, was complaining by 2012 to the bank’s corporate chief risk
officer, Mike Loughlin, about “unrealistic sales goals and her
frustration with Community Bank leadership,” according to the board
report.

Wells did take some small steps, and by at least some measures, the
sales problem did begin improving in 2013. But Wells’s response was
incremental, not Draconian. One explanation is that executives failed to
see the scope of the problem because of the way Wells Fargo was
structured. Kovacevich had always run the company in a decentralized
way, so much so that he’d refer to himself as a “C.E.O. of C.E.O.’s.”
Functions such as risk management, legal, and human resources were not
run at the corporate level, and employees reported to, say, the head of
Community Banking, or the head of Wells’s much smaller business bank.
This meant that Tolstedt, in effect, had her own empire, with her own
risk-management head, Claudia Russ Anderson, reporting to her, rather
than to anyone at the corporate level.

For corporate executives, the structural difficulty of seeing inside the
retail bank was complicated by Tolstedt herself. “She is widely viewed
as building a community bank and making it a business success—and it
was,” says one person who is familiar with Wells Fargo. “But by all
accounts she was mercurial, very wary of others, and apparently not the
type that wanted bad news to surface.”

She viewed the sales model as the key to the community bank’s success,
and didn’t want to take any steps that might “impede its operation,”
noted the board report, which also alleged she was “obsessed with
control.” For instance, when Tolstedt found out that Lisa Stevens had
been complaining, she told Stevens to “toe the line.” (Tolstedt
declined to comment for this article.)

It’s convenient now to place the blame on Tolstedt and on Wells’s model,
but that’s not the whole truth. Kovacevich, for his part, noted to
someone who knows him that the fact that Stevens was complaining was
proof that the decentralized model worked. It’s just that no one in
leadership wanted to hear it, or as the board report noted, “Many
observers expressed their belief that Tolstedt operated the Community
Bank in the way she did because she thought Stumpf would approve.”

And he did, wholeheartedly. After Feuer filed his suit, Stumpf sent an
e-mail to another executive. “I have worked over the weekend with
Carrie on the LA issue—I really feel for Carrie and her team,” he
wrote. “We do such a good job in this area. I will fight this one to
the finish. Do you know only around 1% of our people lose their jobs
[for] gaming the system . . . . Did some do things wrong —you bet
and that is called life. This is not systemic.”

Relying on the statistic that only 1 percent of employees were being
fired annually is an easy way to minimize the problem, because it’s a
measure of one thing only: the people who got caught. It didn’t
represent those who encouraged gaming, or those who were fired for lack
of production, or those who just left because they disapproved of the
culture, like Rodriguez. The turnover at the lower levels of the
community bank ran at 30 percent to 40 percent annually. Inside Wells,
says lawyer Jonathan Delshad, the attitude was “Do what you have to do,
but don’t get caught.”

After the 2013 Los Angeles Times article, the board, at least according
to its own report, got involved. Initially, they believed the problem
was relatively small and was being addressed. After Feuer’s office filed
its lawsuit in 2015, members of the risk committee asked for another
presentation on sales-practice issues. It is unclear who was involved in
the presentation, but board members left with the impression that only
about 200 to 300 people in Southern California had been terminated.
Multiple board members later complained to investigators that they felt
“misled.”

By the end of the year, two directors had told Stumpf over dinner that
Tolstedt should go. Finally, on July 12, 2016, Wells announced that she
would retire at the end of the year. Stumpf called her a
“standard-bearer of our culture, a champion for our customers, and a
role model for responsible, principled and inclusive leadership.”
Because she was retiring, not being fired, her stock in the company,
accumulated over her years at Wells Fargo, was expected to be worth up
to $124 million.

But if Wells could ignore its employees and its customers, and placate
its board, its regulators were a different matter. Less than a week
after the announcement that Tolstedt would retire, the O.C.C. sent a
confidential letter to Stumpf, along with a report on its findings,
which concluded that “the Bank’s sales practices were unethical; the
Bank’s actions caused harm to consumers; and Bank management had not
responded promptly to address these issues.” The O.C.C. had begun
coordinating with Feuer’s office, and the C.F.P.B. also joined the fray.
In early September they announced the joint $185 million settlement.

Newly Minted?

There may be no greater testament to the level of delusion inside Wells
Fargo than the fact that executives were completely shocked by the
outpouring of rage. Finally, Wells announced that it would do what it
had long been unwilling to do: eliminate all product sales goals in
retail banking. On October 12, as the outcry intensified, Stumpf
announced he’d step down as C.E.O., and forfeit $41 million. After its
investigation, the board stripped him of another $28 million and clawed
back $19 million from Tolstedt. After concluding its report, they
stripped her of another $47.3 million. (A lawyer for Tolstedt said,
“We strongly disagree with the report and its attempt to lay blame with
Ms. Tolstedt. A full and fair examination of the facts will produce a
different conclusion.”) A handful of other executives, including
Claudia Russ Anderson, Pam Conboy, and Shelley Freeman, were fired.

Wells Fargo’s new C.E.O. is Tim Sloan, who spent most of his career not
in the retail bank working with consumers but rather catering to big
business clients before becoming C.F.O. and then C.O.O. Sloan is clearly
not a break with the past, but, as a former Wells Fargo executive says,
“he is a very different guy” from Stumpf. “No one has ever seen John
Stumpf angry, and I literally can’t remember ever hearing him swear,”
this person says. “Tim is much more hard-core.”

Already, Sloan has made many changes. Functions such as human resources
are being centralized at headquarters, so information can be dissected
in multiple ways. Cross-selling, it seems, has become a dirty phrase.
Wells now talks about “Mutual Value Exchange,” which seems to boil
down to providing products that customers actually want and use.

Wall Street isn’t sure what to think. Wells Fargo’s stock has regained
the $30 billion it lost, which is as much a sign of optimism about
deregulation in the new administration as anything. But “we gave them
too much credit for being Superman in the banking industry,” says one
major investor. “Now the cape has come off, and Wall Street is
realizing they are just like everyone else and no better than anyone
else.”

Regardless of what happens, the story still tells an uncomfortable tale
of how business, not just the business of banking, but all business, all
too often works in the modern era. “I’m a notary,” Yesenia Guitron
tells me. “I can only charge $10 for my services. But I’m told that,
if I failed to take someone’s proper identification when I’m notarizing
something for them, I could go to jail for 10 years.” How, she wonders,
can you square the large consequences she’d have to face for a small
misdeed for which she was paid a small amount with the small
consequences for large-scale wrongdoing where the people in charge
earned fortunes? The short answer is you can’t.

The domestic doyenne, known primarily for teaching a whole class of homemakers the virtues of a perfectly-timed soufflé or a perfectly-folded sheet, imperfectly found herself in the Big House for five months in 2004, after she was convicted for conspiracy and obstruction of justice related to selling shares of drugmaker ImClone Systems.

The so-called “pharma-bro” created a national media frenzy when he hiked the price of a lifesaving drug by 5,000 percent overnight in 2015, and continued to fan the flames by buying a $2 million single-copy Wu-Tang Clan album and picking fights with presidential candidates. In the midst of the firestorm, he also got arrested and charged with 8 counts of fraud after prosecutors accusing him of using a public drug company he ran as a personal piggybank to pay back investors whose money he lost at his now-defunct hedge funds.

Photo: Photo-Illustration by Ben Park; From Getty Images (Shkreli).

BERNIE MADOFF

The name Bernie Madoff has become synonymous with reprehensible greed after the Wall Street fraudster was caught stealing his victims’ fortunes to live like a king. Madoff was sentenced to 150 years in prison—the maximum for his crimes—after pleading guilty to 11 counts of myriad financial crimes related to a Ponzi scheme that swallowed up $10 billion of investors’ money.

Photo: Photo-Illustration by Ben Park; From Getty Images (Madoff).

ALLEN STANFORD

In the early 2000s, Allen Stanford was enjoying the spoils of a $7 billion Ponzi scheme—a knighthood awarded by Antigua, a handful of yachts, $2 billion to his name, and a cricket team of his very own. But the international fraud empire he built over the course of two decades, in which he offered phony high-interest certificates of deposit at a bank he started in Antigua, imploded. He was charged with 13 counts of wire and mail fraud, conspiracy, and money laundering and sentenced to 110 years in prison without parole.

Photo: Photo-Illustration by Ben Park; From Getty Images (Stanford).

MATHEW MARTOMA

Over the course of several days in July of 2008, Mathew Martoma sealed his fate. That was when the former S.A.C. Capital portfolio manager allegedly used inside information about a clinical trial for Alzheimer’s drugs to bring in a windfall for his firm. Martoma was one of about 85 individuals who were either convicted of or pleaded guilty in the ensuing investigation that rocked Wall Street, though Martoma’s 9-year sentence was on the harsher side. A judge ruled that he also had to forfeit nearly $9.5 million in bonuses he received while working at S.A.C. in 2008, including the Boca Raton home he bought for $2 million.

Photo: Photo-Illustration by Ben Park; From Splash News (Martoma).

SAGE KELLY

By Wall Street standards, Sage Kelly had it all: a cushy, $7 million-a-year gig running Jefferies’s health-care investment-banking unit, a home in Sag Harbor, a growing family, and a group of buddies to pal around with. But it all came crashing down when his wife filed for divorce, alleging in court papers that they had engaged in a foursome with clients and that he would often take so many drugs that he would pee all over their home. Jefferies denied all of the allegations and Kelly’s wife later recanted the statements, but the banker found himself out of a job for two years.

Photo: Photo-Illustration by Ben Park; From Splash News (Kelly).

BRUNO IKSIL

Bruno Iksil earned himself the moniker the “London Whale” for a $6.2 billion trading loss he made on J.P. Morgan’s ledger in 2012. The Frenchman, who contends that his risky trades were made at the behest of his superiors, avoided any sort of prosecution. But the bank was subject to government probes and $900 million in regulatory fines, and its C.E.O., Jamie Dimon, took a 50 percent pay cut.

Photo: Photo-Illustration by Ben Park; From Getty Images (Iksil).

MARTHA STEWART

The domestic doyenne, known primarily for teaching a whole class of homemakers the virtues of a perfectly-timed soufflé or a perfectly-folded sheet, imperfectly found herself in the Big House for five months in 2004, after she was convicted for conspiracy and obstruction of justice related to selling shares of drugmaker ImClone Systems.

Photo-Illustration by Ben Park; From NBC/Getty Images (Stewart).

MARTIN SHKRELI

The so-called “pharma-bro” created a national media frenzy when he hiked the price of a lifesaving drug by 5,000 percent overnight in 2015, and continued to fan the flames by buying a $2 million single-copy Wu-Tang Clan album and picking fights with presidential candidates. In the midst of the firestorm, he also got arrested and charged with 8 counts of fraud after prosecutors accusing him of using a public drug company he ran as a personal piggybank to pay back investors whose money he lost at his now-defunct hedge funds.

Photo-Illustration by Ben Park; From Getty Images (Shkreli).

BERNIE MADOFF

The name Bernie Madoff has become synonymous with reprehensible greed after the Wall Street fraudster was caught stealing his victims’ fortunes to live like a king. Madoff was sentenced to 150 years in prison—the maximum for his crimes—after pleading guilty to 11 counts of myriad financial crimes related to a Ponzi scheme that swallowed up $10 billion of investors’ money.

Photo-Illustration by Ben Park; From Getty Images (Madoff).

ALLEN STANFORD

In the early 2000s, Allen Stanford was enjoying the spoils of a $7 billion Ponzi scheme—a knighthood awarded by Antigua, a handful of yachts, $2 billion to his name, and a cricket team of his very own. But the international fraud empire he built over the course of two decades, in which he offered phony high-interest certificates of deposit at a bank he started in Antigua, imploded. He was charged with 13 counts of wire and mail fraud, conspiracy, and money laundering and sentenced to 110 years in prison without parole.

Photo-Illustration by Ben Park; From Getty Images (Stanford).

STEVE COHEN

If he is not number one, Steve Cohen is pretty close to being considered the luckiest man on Wall Street. While federal investigators circled Cohen and his firm, S.A.C. Capital, for nearly a decade, only his employees were convicted of wrongdoing, while Cohen was never nailed. His firm pleaded guilty to insider trading and forker over a record $1.8 billion fine, but all Cohen got was a two-year ban on managing outside money—a most gentle slap on the wrist from the S.E.C. while he happily manages his family office and prepares for his next steps in the hedge fund world.

Photo-Illustration by Ben Park; From Getty Images (Cohen).

RAJ RAJARATNAM

Raj Rajaratnam was a frugal billionaire of sorts—opting to fly commercial and flouting the fancy art and high-end collectables that many of his fellow hedge fund managers favored. But he was also keen on skirting the law, a court found. Rajaratnam was charged with trading on inside information in 2009 and convicted on 14 counts of conspiracy and securities fraud in case considered to be one of the biggest prosecutorial wins in white collar criminal history. He is currently serving out his 11 years in the main prison at the Federal Medical Center at Devens in Ayer, Massachusetts.

Photo-Illustration by Ben Park; From Getty Images (Rajaratnam).

MICHAEL MILKEN

That billionaire Michael Milken, the high-flying junk bond king of Beverly Hills, found himself sobbing in front of a courtroom in 1990 as he was sentenced to 10 years in prison, surely felt like a cruel twist of fate. That he ended up there because another convicted fraudster, Ivan Boesky, traded his name as part of his insider trading charges, surely felt even crueler. Milken was originally charged with 98 counts of racketeering, securities fraud, and mail fraud, though he pleaded guilty to just six counts of conspiracy and fraud related to illegal securities trading. He was ordered to pay $600 million in fines.

Photo-Illustration by Ben Park; From Getty Images (Milken).

JEFFREY SKILLING

Jeffrey Skilling was the chief executive of Enron when the energy-trading giant crumbled under the weight of its accounting schemes, which hid the scope of its financial woes and stripped billions of dollars from shareholders and employees. He was initially sentenced to 24 years in prison—a punishment that was later reduced to 14 years and a $42 fine. He reportedly spent his time behind bars tutoring in Spanish and reading the newspaper to a blind inmate each day.

Photo-Illustration by Ben Park; From Getty Images (Skilling).

R. FOSTER WINANS

A scheme that netted less than $1 million in profits and resulted in an 18-month jail sentence is hardly the sexiest on this list, but the transgression is perhaps the most unusual. Former Wall Street Jornal columnist R. Foster Winans admitted that in the early 1980s, he would slip Peter Brand information about a stock he would be featuring in his column, “Heard on the Street”—the contents of which would often move markets. Brant would make trades based on the early information, and Winans would receive a kickback in kind.

Photo-Illustration by Ben Park; From Getty Images (Winans).

MATHEW MARTOMA

Over the course of several days in July of 2008, Mathew Martoma sealed his fate. That was when the former S.A.C. Capital portfolio manager allegedly used inside information about a clinical trial for Alzheimer’s drugs to bring in a windfall for his firm. Martoma was one of about 85 individuals who were either convicted of or pleaded guilty in the ensuing investigation that rocked Wall Street, though Martoma’s 9-year sentence was on the harsher side. A judge ruled that he also had to forfeit nearly $9.5 million in bonuses he received while working at S.A.C. in 2008, including the Boca Raton home he bought for $2 million.

Photo-Illustration by Ben Park; From Splash News (Martoma).

SAGE KELLY

By Wall Street standards, Sage Kelly had it all: a cushy, $7 million-a-year gig running Jefferies’s health-care investment-banking unit, a home in Sag Harbor, a growing family, and a group of buddies to pal around with. But it all came crashing down when his wife filed for divorce, alleging in court papers that they had engaged in a foursome with clients and that he would often take so many drugs that he would pee all over their home. Jefferies denied all of the allegations and Kelly’s wife later recanted the statements, but the banker found himself out of a job for two years.

Photo-Illustration by Ben Park; From Splash News (Kelly).

BRUNO IKSIL

Bruno Iksil earned himself the moniker the “London Whale” for a $6.2 billion trading loss he made on J.P. Morgan’s ledger in 2012. The Frenchman, who contends that his risky trades were made at the behest of his superiors, avoided any sort of prosecution. But the bank was subject to government probes and $900 million in regulatory fines, and its C.E.O., Jamie Dimon, took a 50 percent pay cut.